Since 2012, our Valle de Guadalupe, nestled in the picturesque Baja California region of Mexico, has become a premier wine tourism destination. Our scenic valley is known for its vineyards, boutique wineries, and gourmet dining experiences. It has become a magnet for both domestic and international travelers.
As a result, to fill the growth in demand, the short-term vacation rental market in Valle de Guadalupe experienced a huge surge between 2012 and 2020. We went from an almost non-existent market to hundreds if not over 1 thousand short-term vacation rentals flooding our area.
But it is too much now? Let’s find out!
Back in 2012, when I built Hacienda-Eco Domes, I had workers lining up for jobs. I had to turn away workers every day. It was a builder’s market. There was nothing here, nothing to rent. But since then, the construction boom changed everything so much that we had to import workers from the south of the country to meet demand.
When driving through our area one would see construction projects everywhere. But around 2019, I started to feel like the number of vacation rental units available to tourists was about where the demand was at. It felt good! In other words, we had enough new construction where equilibrium was achieved and we were in balance.
However, the problem was that land-owners did NOT get the message. No memo goes out announcing equilibrium. So landowners and entrepreneurs simply don’t know when equilibrium is reached. They are left to guess.
Here in Mexico, market data is sparse and held by official notaries. It’s not public knowledge. So we don’t know the actual data to make informed investment decisions. Improving the market data is a massive improvement Mexico can make but we will leave that topic for another article.
For our purposes herein, we just do not have much market data. Recently, with the rise of Airbnb, we can get some data on what is available in our area and that’s good. It helps! But without super clarity of market data, landowners kept building thinking their investments would pay off big time based on what happened in the previous 10 years. In fact, during the COVID years, there was NOT much of a slowdown in construction at all. It kept on going! And so now, in 2024, we are unbalanced again. But this time, in favor of the tourists. We simply have too much supply to meet current demand.
In driving around our area now, I see much less construction and stalled projects; all signs that investors are realizing that putting in their money will NOT get the exciting high expected rates of return that we once got between 2012 and 2020. In short, our market is over-saturated with short-term rentals now. So now what?
First, this market challenge is normal. It’s not unique to our area. Market equilibrium is never perfect in imperfect markets. So it’s always bouncing back and forth between over and under supply. We just need to understand where we are and act accordingly.
THE GOOD NEWS: MEET THE WINNERS
When markets are over-supplied, then market culling and consolidation take place. In short, the best of the best in the market will be the big winners. They offer high-quality experiences with unique stays. They often will marry those experiences with events and value-added services such as the Mexican Cooking Class at our Hacienda Eco-Domes. They are strong properties with strong management competing and offering tourists outstanding world-class options are outstanding market prices.
THE BAD NEWS: MEET THE LOSERS
Those who built what some call “shoe boxes”; a small building with no style or thought just to make a quick buck built fast with mediocre quality will suffer the wrath of the market that has better choices and rejects them.
In other words, to get a piece of the finite limited market, a property with 10 shoe boxes will need to lower its prices to the point that the cost of maintaining the box outweighs the benefit of renting it out. To make matters worse, they will be competing with other shoe box providers for the same limited lower-end consumers.
In the end, each of them will end up with large vacancies causing them to rethink if it’s even worth doing this business. Some will stick it out in hopes of a better day and many will shut their doors and do something else that has a chance for profit. In short, the market will cull the weak. That’s normal in free markets!
THE CURRENT STATUS
As of this writing, the current demand is good. But too many businesses are complaining that it’s not. The reason for this is too much supply of everything including restaurants, hardware stores et al, all competing for the same limited demand. It is just too spread out now! In general, it is just a normal over-building boom that went past demand. It is that simple!
The good news is that we are now on a path to getting back into balance. But it will take time.
Real estate markets are slow movers. The top 20% of the suppliers will win and be strong. The middle offerings will survive and earn profits to stay in business. But the bottom 20% will falter as they should. They will be culled and it will improve the market for everyone.
CAN WE INCREASE DEMAND?
Yes, we can! Absolutely! But that’s a decision local business leaders need to make. They need to inject new enthusiasm and give new and exciting reasons for tourists to visit our area; not just wine enthusiasts.
For example, I grew up in Las Vegas, and back in the late 1970s and early 1980s, the market was super slow. The strip was getting old. The casinos were out of date! Business was bad!
Back then Las Vegas was run by “mafia” operators who only saw the casino money and nothing else. It worked for them in the past so no changes were made. We had the same old STARDUST from the 1960s stuck in time!
Then, this guy comes along named STEVE WYNN. He goes out and gets Wall Street money to invest (Junk Bonds, Milken) to build this new resort called THE MIRAGE. He injected it with shows, attractions, water fountain shows, and top-notch art to show off. He spent an unheard of 1 billion dollars which, at that time, was the most ever spent on a hotel. It was a huge gamble and a huge hit. He did it again with TREASURE ISLAND and the race for a new LAS VEGAS was on.
Today, Las Vegas is NOT only a place for casinos but also a main place for entertainment, sports, and business. It’s much more diverse now than ever before. Its local economy is now much more resilient.
LEADERSHIP MATTERS
Now, I am not suggesting that our local leaders here get Wall Street money and change the character of our wine valley into a Disneyland for adults. I only tell this story to highlight the fact that our valle could increase demand by adding value to increase tourism with new visitors, not just wine enthusiasts.
For example, we already can see that our area has become a lovely place to bike ride. But we have NOT built a serious world-class infrastructure for bike riders. Bike riders tend to be middle to upper-class folk with disposable income; a perfect compliment to our area.
If bike riders were invited to come here as a destination where they can bike ride on safe paths and provided monthly events to commune and enjoy, they would come in droves and spend their money freely at short-term vacation properties and all the restaurants too.
Oh and yes, we do have an annual bike here now since 2015 and that’s a great start (although I cannot find any info for 2024 online, so not sure about its status). Nevertheless, I am talking about a focused market-building directive to make this Baja California’s # 1 place to bike ride! Safe Trails! Dedicated Lanes! Bike Shoppes! World-Class!
Do you know how many bike riders in California and Arizona would love to bike ride safely here if they were given priority instead of an afterthought?
That’s how you add to the already existing demand. It will help the economy be a bit more diverse and resilient. Something to think about, right?
Some other ideas are a return to LIVE music and allowing winners and bigger operators to have world-class music events but with better regulation so that it does NOT overrun access to resources.
Or how about hosting smaller international conventions related to our industries? Many things can be done to increase demand. We just need a solid vision that can win the future.
Conclusion
The short-term vacation rental market in Valle de Guadalupe was thriving, driven by the region’s unique blend of wine tourism, culinary excellence, and natural beauty. As 2024 unfolds, the market dynamics reflect a solid demand but because of oversupply, owners are having profit challenges causing them to rethink their businesses.
Looking ahead to 2025, Valle de Guadalupe is moving slowly back to balance. It will take a few years for supply and demand to get back to equilibrium. And if local leaders take assertive action with big plans, they can easily get it back to balance much faster.
For travelers, investors, and local businesses alike, the future of Valle de Guadalupe’s vacation rental market needs to adjust to the market realities and it will. Thus, the future is still full of promise and it will be exciting too. We just need to roll up our sleeves, work hard, be smart, have a serious market game plan, and earn our future success!
NOTE: I encourage comment, discourse, disagreement, and debate…..so feel free to offer your two cents
